Corruption and the Rate of Temptation - Do Low Wages in the Civil Service Cause Corruption?

WP/97/73-EAWP/97/73

Corruption and the Rate of Temptation: Do Low Wages in the Civil Service Cause Corruption? by Caroline Van Rijckeghem and Beatrice Weder

While it is generally agreed that government wage policy has an effect on corruption, the magnitude of this effect is more controversial. It is often argued that .efficiency wages. play a lesser role in government, because income from bribery is likely to overshadow the disciplinary effect of job loss. As a result, the argument goes, raising wages to the high levels required to deter corruption may be prohibitively expensive. In an alternative view, modeled in this paper, which relies on the concepts of .fair wages. and reciprocity, motivational aspects can be strong even in high-bribe environments and corruption can be eliminated at low wage levels.

The main empirical findings of the paper are these:

First, an increase in the ratio of civil service to manufacturing pay from 1 to 2 is associated with an improvement in the corruption index (which ranges from 0 to 6) on the order of 1 point in the .between. (i.e., cross-country) regressions for a sample of 25 developing countries. Second, civil service wages are highly correlated with measures of rule of law and quality of the bureaucracy, and may therefore have additional indirect effects on corruption. Third, relative pay has no significant effect on corruption in .within country. regressions, indicating that pay may not have a contemporaneous effect on corruption. Fourth, quasi-eradication of corruption requires a relative wage of 3-7 times the manufacturing wage. Stronger internal and external controls are associated with lower corruption across countries. These findings are consistent with the .fair wage-corruption. hypothesis only when bribe levels are low or the probability of detection is high.